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What Happens When Food Marketers Require Restrictive Farming Practices?

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  • Saitone, Tina L.
  • Sexton, Richard J.
  • Sumner, Daniel A.
Abstract
The dimensions that define a food product have expanded rapidly to include characteristics of the production process, marketing arrangements, and implications that production and consumption of the product have for the environment. Some market intermediaries have responded by requiring that their suppliers abide by restrictive production practices. We examine the economic effects of such restrictions and apply this analysis to limitations on the use of antibiotics in U.S. pork production. Results from conceptual and simulation analyses show that, in the absence of demand growth, less pork is sold due to higher costs in the restricted segment, and both pork consumers (on average) and producers are harmed. Demand growth of between 6–11% from adding new consumers who will consume the restricted (antibiotic-free) product but not the conventional product is needed to return consumer surplus to the level in the base case, and between 2–4% demand growth was required to return producer surplus to base. When restricted and conventional products are modeled using a vertical differentiation framework, results depend importantly on the ease with which consumers can switch to a seller who offers their desired product type. Significant distributional impacts among consumers are present when switching costs are prohibitive.
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  • Saitone, Tina L. & Sexton, Richard J. & Sumner, Daniel A., 2013. "What Happens When Food Marketers Require Restrictive Farming Practices?," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 151268, Agricultural and Applied Economics Association.
    • Handle: RePEc:ags:aaea13:151268
    DOI: 10.22004/ag.econ.151268
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    Cited by:

    1. Lee, Hanbin & Sexton, Richard J. & Sumner, Daniel A., 2022. "Government Restrictions on Food Available to Consumers: Economics of Regulations that Limit Farming Practices for Products Sold within Jurisdictions, with Application to California’s 2022 Pork Rules," 2022 Annual Meeting, July 31-August 2, Anaheim, California 322438, Agricultural and Applied Economics Association.
    2. Tina L. Saitone & Richard J. Sexton, 2017. "Agri-food supply chain: evolution and performance with conflicting consumer and societal demands," European Review of Agricultural Economics, Oxford University Press and the European Agricultural and Applied Economics Publications Foundation, vol. 44(4), pages 634-657.
    3. Bovay, John & Alston, Julian M., 2018. "GMO food labels in the United States: Economic implications of the new law," Food Policy, Elsevier, vol. 78(C), pages 14-25.
    4. Ahearn, Mary Clare & Armbruster, Walt & Young, Robert, 2016. "Big Data's Potential to Improve Food Supply Chain Environmental Sustainability and Food Safety," International Food and Agribusiness Management Review, International Food and Agribusiness Management Association, vol. 19(A), pages 1-18, June.
    5. Julian M. Alston & Philip G. Pardey, 2020. "Innovation, Growth, and Structural Change in American Agriculture," NBER Chapters, in: The Role of Innovation and Entrepreneurship in Economic Growth, pages 123-165, National Bureau of Economic Research, Inc.
    6. Zhang, Dengjun & Xie, Yifan, 2022. "Customer environmental concerns and profit margin: Evidence from manufacturing firms," Journal of Economics and Business, Elsevier, vol. 120(C).
    7. Paul, Andrew S. & Lusk, Jayson L. & Norwood, F. Bailey & Tonsor, Glynn T., 2019. "An experiment on the vote-buy gap with application to cage-free eggs," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 79(C), pages 102-109.
    8. repec:ags:aaea22:335587 is not listed on IDEAS
    9. Hennessy, David A., 2018. "Managing Derived Demand For Antibiotics In Animal Agriculture," 2018 Annual Meeting, August 5-7, Washington, D.C. 274359, Agricultural and Applied Economics Association.
    10. Lusk, Jayson L. & Tonsor, Glynn T. & Schroeder, Ted C. & Hayes, Dermot J., 2018. "Effect of government quality grade labels on consumer demand for pork chops in the short and long run," Food Policy, Elsevier, vol. 77(C), pages 91-102.
    11. Luuk S. M. Vissers & Roel A. Jongeneel & Helmut W. Saatkamp & Alfons G. J. M. Oude Lansink, 2022. "A multiple‐standards framework to address externalities resulting from meat production," Applied Economic Perspectives and Policy, John Wiley & Sons, vol. 44(2), pages 946-959, June.
    12. Lai, Yufeng & Boaitey, Albert & Minegishi, Kota, 2022. "Behind the veil: Social desirability bias and animal welfare ballot initiatives," Food Policy, Elsevier, vol. 106(C).
    13. Lee, Hanbin & Sexton, Richard J. & Sumner, Daniel A., 2021. "Economics of Mandates on Farm Practices: Lessons from California’s Proposition 12 Regulations on Pork Sold in California," 2021 Annual Meeting, August 1-3, Austin, Texas 313920, Agricultural and Applied Economics Association.
    14. Wolf, Christopher A. & Tonsor, Glynn T., 2017. "Cow Welfare in the U.S. Dairy Industry: Willingness-to-Pay and Willingness-to-Supply," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 42(2), May.
    15. Lai, Yufeng & Minegishi, Kota & Boaitey, Albert K., 2020. "Social Desirability Bias in Farm Animal Welfare Preference Research," 2020 Annual Meeting, July 26-28, Kansas City, Missouri 304375, Agricultural and Applied Economics Association.
    16. Hanbin Lee & Richard J. Sexton & Daniel A. Sumner, 2023. "National and subnational regulation of farm practices for consumer products sold within a jurisdiction: California's Proposition 12," Agricultural Economics, International Association of Agricultural Economists, vol. 54(6), pages 838-853, November.
    17. Jauernig, Johanna & Pies, Ingo & Thompson, Paul B. & Valentinov, Vladislav, 2020. "Agrarian vision, industrial vision, and rent-seeking: A viewpoint," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 33(3-6), pages 391-400.
    18. Ortega, David L. & Wolf, Christopher A., 2018. "Demand for farm animal welfare and producer implications: Results from a field experiment in Michigan," Food Policy, Elsevier, vol. 74(C), pages 74-81.

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